Through the Looking-Glass markets: Speculation, Mania, and Crypto Insanity. Bitcoin—the most epic bubble in human history
Why video game money has become the greatest distraction of our time
“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?”
- Alice in Wonderland
This won’t be a popular post. At one time not long ago, some of these sentiments you’re about to read were widely held. What changed? Nothing other than price. Greed is omnipresent and tales of fortune are its lure. Bitcoin was the perfect asset for it, but few saw it at the time.
Cryptomania has swept the globe. Incredible amounts of wealth born from this industry are galvanizing a frenzy as people put real time and money to work. The promise of moonshots abound with tribal groups organizing action to recruit new agents for the cause. The cryptocurrency bubble is showcasing all of mankind’s most primitive tendencies. Fear, greed, tribalism, hope, and dogma—-it’s become a religion unto itself. And this is all quite recent.
Throughout my conversations with cryptophilic missionaries, there were always several concerns of mine that remain unsettled. My goal is to articulate these views so as to add skepticism at a time when there is little. In this process, Bitcoin maximalists and the rest will dismiss me as a waste of time. Ironically, wasted time is one of my biggest objections with cryptocurrencies. I’ll get to that in a bit. Below are my three critiques.
1) Bitcoin supply is infinite, not 21 million.
My first point is these cryptos are completely open-source. I’m a big fan of that technology—the promises of the Internet and an open Web are built on such principles. However, that salient point of open-source highlights these cryptos can be replicated an infinite number of times. When someone points out the unique features of a particular crypto, those same features can be copied using a parallel cloned codebase. Bitcoin’s supply cap of there only ever being 21 million Bitcoin is true only on that particular network—with an infinite number of networks possible. Therefore, the only aspect of Bitcoin that is unique is its existing established network. Effectively, it’s a social network.
Objections to that is it’s easier said than done—that people have tried to copy Bitcoin with all of its features, but there is still only one true Bitcoin network. No doubt about it—Bitcoin is the OG. But then that undermines all the other arguments about why to buy Bitcoin if I can get the same properties on a paralleled network. The sole principle in why this Bitcoin is worth $60,000 and an identical copycat is worth nothing is the social clout. The installed user base is the deciding factor; it becomes a popularity contest.
The same cannot be said of elements in the physical world. Take gold for instance. It’s a typical comparison to Bitcoin, but both have nothing in common. With gold, I can’t replicate it. Its properties cannot be imparted onto a parallel material. If I need gold, I can only use gold. There is no secondary gold. In some areas I may be able to substitute with an alternative material, but then that material isn’t gold.
With open-source crypto, you absolutely can. So it becomes a network effect fad. That’s the value of crypto, not of the properties. The properties can be exported by anyone. You can’t do that with gold or any element. Let’s move on.
2) Crypto is one gigantic societal timesuck.
There’s no question an incredible amount of intellect, skill, time, manpower, etc., is being devoted to developing optimal blockchains with usable applications. I find much of it is more prototypical hype that doesn’t transfer to scalable utility. Much of the promise is, “just around the corner,” and that’s been the case for a decade now. Crypto has severely underwhelmed on its promises consistently. This is a red flag.
Let’s look at the world around us today. At a time when humans are devoting millennia worth of manpower into crypto, we have shortages everywhere. It’s incredible that as a species we are playing with and developing virtual video game money. We’re using real time and resources to do it!
It’s the ultimate Nero fiddling while Rome burns. We have food, consumer, and capital goods shortages at a time when bright individuals are developing 13,000+ cryptos—and counting. You have millions more gambling on the industry as the returns gameify legitimate investing.
It is a massive, massive societal distraction. Crypto is pulling trillions of monetary resources alongside with irrecoverable lost time and skill out of the labor market. Instead of building real world applications like factories to produce goods we need for survival and enjoyment, we are playing essentially video games. It’s one massive simulated MMORPG in real life for the globe.
3) Greed fueled by price validation drives popularity, not the technology itself
Anytime I get into a debate on Bitcoin I ask this question: where were you the entire time? Bitcoin has been out for over a decade, yet everyone I run into didn’t get interested until years later. And that’s my biggest concern.
At the end of the day, through all the crypto talking points, it comes down to greed. Plain and simple. People were not interested until they realized high stakes fortunes could be made. I don’t necessarily have a problem with that, but don’t rewrite history. The properties of Bitcoin have been published since 2008. That white paper has been public domain for a long time, so where was the Bitcoin interest? It didn’t happen until recently, and it’s due to price validation.
So when someone argues with me about buying Bitcoin, I ask why they didn’t buy at at much lower levels. If you were on the Internet, you heard about Bitcoin long before it ascended. You could buy it for a few bucks in 2013. Yet 99.9% of any Bitcoiner you run into today didn’t buy in until years later. They came much later even though the properties of Bitcoin were being discussed openly. You didn’t have to dig hard to find the pitches.
Don’t let Bitcoin maximalists fool you. The greed is what brought them to the party. If Bitcoin was $30, they wouldn’t care about it. The aspects they tout would be meaningless. The lure of fortune is what brought them in. They then adopted the rhetoric and began pitching to new recruits. Eventually, even they themselves believed their own pitch. And that has all the elements of a bubble.
Sir Isaac Newton, arguably the smartest man in history, was sucked into the South Sea Bubble in 1720. Yes, even the most intelligent cannot suppress natural human instincts and desires that greed entails.
With unprecedented monetary and fiscal stimulus paired with COVID, we have inverted much of society. The social consequences are immense. We are genuinely in Alice’s Wonderland, staring through the looking-glass in financial markets. Real people with incredible skills are squandering it on digital nothings, making fortunes from it, while the real-world economy is deteriorating due to lack of goods and services. Our best talent is being pulled away from solving serious problems we as a species are facing here and now.
Remember, Bitcoin crashed 90% when interest rates went to 2% just a few years ago. Speculative assets have had an incredible run. I believe we are very near a quite sobering moment. It will absolutely knock us out of our collective stupor as we realize video game gold mines are not real, and that the real world desperately needs to be rebuilt. In the meantime, don’t worry about me. To the Johnny-Come-Lately crypto disciples, I’m content and having fun staying poor.